About the Office of Hearing Officers
Under Section 15A(b)(8) of the Securities Exchange Act of 1934, FINRA must provide a fair and impartial procedure for the disciplining of members, and persons associated with members, and enforcement of FINRA’s rules.
The Office of Hearing Officers (OHO) is an office of impartial adjudicators who preside over disciplinary actions commenced by FINRA’s Enforcement Department and expedited proceedings involving FINRA’s Departments of Regulatory Operations and Enforcement. OHO maintains strict independence from FINRA’s regulatory and enforcement programs and is physically separated from other FINRA departments. Hearing Officers are not involved in the investigative process. Furthermore, employment protections exist for Hearing Officers to further ensure their independence. Only FINRA’s Chief Executive Officer can terminate a Hearing Officer, and the termination can be appealed to the Audit Committee of FINRA’s Board of Governors.
Filing of Complaints and Appointment of Hearing Panels; Conflicts Procedures
When the Department of Enforcement determines that misconduct may have occurred, Enforcement may commence a formal disciplinary action by filing a complaint with OHO. Next OHO arranges a three-person panel to hear the case. The panel is chaired by a Hearing Officer who is an employee of OHO. The Chief Hearing Officer appoints two industry panelists, drawn from a pool of current and former securities industry members of FINRA’s District and Regional Committees, current and former industry members of its Market Regulation Committee, former industry members of FINRA’s National Adjudicatory Council (NAC), and former FINRA Governors.
OHO also handles different types of expedited proceedings. Some expedited proceedings require the appointment of a three-person panel, similar to disciplinary panels, and others are handled by a Hearing Officer alone.
Before a Hearing Officer or industry panelist is appointed to serve on a Hearing Panel or handle an expedited proceeding, OHO evaluates the candidate to ensure that he or she is free of conflicts of interest, and that there are no circumstances existing where the candidate’s fairness might reasonably be questioned. Following appointment, if a Hearing Officer or an industry panelist learns of a conflict of interest or other circumstance in which his or her fairness might reasonably be questioned, he or she must inform the Chief Hearing Officer and withdraw from the matter.
Hearings and Decisions
OHO conducts disciplinary hearings at locations throughout the United States for the convenience of the respondents. The process for disciplinary hearings is governed by FINRA’s Code of Procedure, which has been approved by the Securities and Exchange Commission. The Code of Procedure ensures that hearings are conducted fairly, Hearing Panels act in an impartial and objective manner, and cases are concluded as expeditiously as possible.
A Hearing Officer administers each case by conducting pre-hearing conferences, ruling on motions and the admissibility of evidence, and issuing default decisions as appropriate and in accordance with FINRA’s Code of Procedure. Before each hearing, the parties submit lists of their proposed witnesses and exhibits, together with pre-hearing briefs that set forth summaries of their legal theories. At the conclusion of the hearing or shortly thereafter, the Hearing Panel deliberates, and the Hearing Officer prepares a draft Hearing Panel decision. The Hearing Panel decision includes factual findings, legal conclusions, and when appropriate, sanctions. Draft Hearing Panel decisions are circulated among all panel members, who then have an opportunity to comment upon and edit the draft. The time required to develop a final Hearing Panel decision can depend upon many factors, including the complexity of the legal issues in the case and the nature of the facts in dispute.
Hearing Officers also conduct hearings in a variety of expedited proceedings, which may include temporary cease-and-desist cases, cases involving the failure to pay FINRA dues, fees or other charges, failure to pay arbitration cases, and other expedited matters. Hearings in some expedited proceedings occur by telephone while others may occur in person, at various locations throughout the country.
When a Hearing Panel or Hearing Officer (in cases that are before only a Hearing Officer) find misconduct, they may impose a variety of sanctions, including the suspension or expulsion of a broker-dealer from FINRA membership, the suspension or bar of an associated person from association with any FINRA member, a fine, an order to pay restitution, an order to disgorge ill-gotten gains, a censure, and a cease-and-desist order. To determine the appropriate sanction to be imposed, the Hearing Panel or Hearing Officer considers the sanctions recommended in FINRA’s Sanction Guidelines.
Hearing Panel decisions, Hearing Officer decisions in expedited cases, and significant Hearing Officer orders are posted on OHO’s section of FINRA’s website, at www.finra.org/oho.
Parties may appeal a Hearing Panel decision to the NAC, which performs a “de novo” review. The NAC can then affirm, reverse, modify, set aside, or remand the decision for further proceedings. Appeals from decisions of the NAC are to the Securities and Exchange Commission.
Expedited proceedings follow similar appeal processes.